________________________________________________________________________________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
__________
For the Quarterly Period Ended September 30, 1996 Commission File No. 0-22656
CAPITAL SAVINGS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1656529
(State of Incorporation) (I.R.S. Employer Identification No.)
425 Madison
Jefferson City, Missouri 65101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (573) 635-4151
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes__X__ No_____
The number of shares outstanding of the issuer's common stock, par value $.01
per share, was 938,000 at November 5, 1996.
Transitional Small Business Disclosure Format (check one): _____; __X__
________________________________________________________________________________
<PAGE>
CAPITAL SAVINGS BANCORP, INC.
FORM 10-QSB
Index
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements PAGE
Consolidated Statements of Financial Condition as of September 30,
1996 (unaudited) and June 30, 1996. . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations for the Three Months
ended September 30, 1996 and 1995 (unaudited) . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the Three Months
ended September 30, 1996 and 1995 (unaudited) . . . . . . . . . . . 4
Notes to Consolidated Financial Statements (unaudited) . . . . . . . 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2 Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 12
Item 3 Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . 12
Item 5 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 12
Exhibit 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signature Page. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
<TABLE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<CAPTION>
September 30, June 30,
1996 1996
ASSETS (unaudited)
<S> <C> <C>
Cash and due from depository institutions (including $ 3,947,394 $ 2,973,489
interest-earning deposits totaling $1,047,813 at
September 30, 1996 and $220,079 at June 30, 1996)
Securities available-for-sale 29,553,254 30,306,297
Securities held-to-maturity (approximate fair values of
$14,799,500 at September 30, 1996 and
$11,876,019 at June 30, 1996) 14,777,387 11,979,383
Stock in Federal Home Loan Bank 2,650,000 2,100,000
Loans receivable, net 176,006,647 166,623,231
Accrued interest receivable 1,585,592 1,401,109
Real estate owned 78,078 31,554
Premises and equipment 2,076,239 1,990,741
Other assets 570,346 547,931
_____________ _____________
Total Assets $231,244,937 $217,953,735
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Deposits $154,435,948 $152,344,791
Borrowed funds 53,000,000 42,000,000
Advances from borrowers for taxes and insurance 1,598,430 1,420,059
Accrued expenses and other liabilities 2,332,729 1,359,913
Income tax payable 353,765 348,046
_____________ _____________
Total liabilities 211,720,872 197,472,809
Serial preferred stock, $.01 par value;
authorized 800,000 shares; none issued
Common stock, $.01 par value; authorized
5,200,000 shares, issued September 30, 1996,
1,211,593; June 30, 1996, 1,211,593 12,116 12,116
Additional paid-in capital 11,757,382 11,728,171
Retained earnings, restricted 12,775,124 12,983,429
_____________ _____________
24,544,622 24,723,716
Treasury Stock, at cost - 273,589 shares at
September 30, 1996 and 224,410 shares at June 30, 1996 (4,490,693) (3,550,170)
Unearned compensation-Recognition and
Retention Plan (RRP) (23,220) (31,110)
Unearned compensation - Employee Stock
Ownership Plan (ESOP) (553,934) (583,259)
Unrealized gains(losses) on securities
available-for-sale, net of effect of deferred taxes 47,290 (78,251)
_____________ _____________
Total stockholders' equity 19,524,065 20,480,926
_____________ _____________
Total liabilities and stockholders' equity $231,244,937 $217,953,735
============= =============
<FN>
See accompanying Notes to Consolidated Financial Statements (unaudited)
</FN>
</TABLE>
<PAGE>
<TABLE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
INTEREST INCOME: __________________ __________________
<S> <C> <C>
Loans receivable $3,169,650 $2,830,535
Consumer and other loans 299,669 237,168
Investment securities held-to-maturity
and securities available-for-sale 322,883 136,316
Mortgage-backed securities 477,824 372,579
Other interest-earning assets 18,922 23,124
______________ _____________
Total Interest Income 4,288,948 3,599,722
______________ _____________
<CAPTION>
INTEREST EXPENSE:
<S> <C> <C>
Deposits 1,831,013 1,724,164
Borrowed funds 676,942 284,688
______________ _____________
Total Interest expense 2,507,955 2,008,852
______________ _____________
Net Interest Income 1,780,993 1,590,870
Provision for loan losses 30,000 30,000
______________ _____________
Net interest income after
provision for loan losses 1,750,993 1,560,870
______________ _____________
<CAPTION>
NONINTEREST INCOME:
<S> <C> <C>
Loan servicing fees 50,038 44,819
Other 185,621 120,921
Income (loss) from real estate owned held-for-sale 1,163 (4,748)
______________ _____________
Total noninterest income 236,822 160,992
______________ _____________
<CAPTION>
NONINTEREST EXPENSE:
<S> <C> <C>
Compensation and benefits 565,263 502,712
Occupancy and equipment 151,551 120,485
Federal insurance premiums 1,045,895 83,910
Other expense 423,155 290,477
______________ _____________
Total noninterest expense 2,185,864 997,584
______________ _____________
Income before provision for income taxes (198,049) 724,278
Provision for income taxes (73,271) 280,696
______________ _____________
Net Income ($124,778) $443,582
============== =============
<FN>
See accompanying Notes to Consolidated Financial Statements (unaudited)
</FN>
</TABLE>
<PAGE>
<TABLE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES ______________ _____________
<S> <C> <C>
Net Income ($ 124,778) $ 443,582
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred loan origination fees (12,525) (19,289)
Amortization of premiums and accretion
of discounts on mortgage-backed, investment
securities and securities held for sale 15,963 (30,243)
Depreciation 84,000 61,500
Provision for loan losses 30,000 30,000
Loss(gain) on sale of real estate
owned held for sale 0 (523)
Compensation Expense-RRP 7,890 14,022
Compensation Expense-ESOP 19,986 57,806
Origination of loans receivable
originated for sale to FHLMC 0 (3,760,875)
Proceeds from loans receivable
originated for sale to FHLMC 0 3,760,875
Cash provided (used) by:
Other assets (22,415) (17,521)
Accrued expenses and other liabilities 972,816 181,561
Income taxes payable 5,719 212,123
_____________ ____________
Net cash provided by operating activities $ 976,656 $ 933,018
_____________ ____________
<CAPTION>
CASH FLOWS FROM INVESTING ACTIVITIES
<S> <C> <C>
(Loan origination) and principal
payment on loans receivable, net ($ 9,573,863) ($ 3,000,022)
Principal payments on mortgage-backed securities 1,503,595 843,406
Purchases of:
Securities available-for-sale (1,326,000) (1,462,162)
Securities held-to-maturity (2,000,000) 0
Proceeds from maturities of:
Securities available for-sale 500,000 982,349
Securities held-to-maturity 0 2,858
Purchase of Federal Home Loan Bank stock (550,000) 0
Decrease (increase) in certificates of
deposit, net (800,000) 0
Proceeds from sale of real estate owned
held for sale 0 92,342
Cash outflows for premises and equipment (85,498) (304,946)
_____________ _____________
Net cash provided (used) by investing activities ($12,331,766) ($ 2,846,175)
_____________ _____________
<PAGE>
<CAPTION>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
Three Months Three Months
Ended Ended
September 30, September 30,
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES _____________ _____________
<S> <C> <C>
Net increase (decrease) in deposits $ 2,091,157 $ 986,970
Net increase (decrease) in borrowed funds 11,000,000 2,000,000
Net increase (decrease) in advances
from borrowers for taxes and insurance 178,371 145,010
Acquisition of treasury stock (940,513) 0
____________ ___________
Net cash provided (used) by
financing activities $12,329,015 $ 3,131,980
____________ ___________
Net increase (decrease) in
cash and cash equivalents 973,905 1,218,823
Cash and cash equivalents at
beginning of the period 2,973,489 2,739,296
____________ ___________
Cash and cash equivalents at
end of the period $ 3,947,394 $ 3,958,119
============ ===========
<CAPTION>
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
<S> <C> <C>
Cash paid during the period for:
Interest $ 1,828,920 $ 1,702,347
Income taxes $ 148,892 $ 242,129
Non-cash transactions:
Transfers from loans receivable to
real estate owned held for sale $ 40,049 $ 71,120
Transfers from real estate owned held
for sale to loans receivable $ 0 $ 0
</TABLE>
<PAGE>
CAPITAL SAVINGS BANCORP INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Generally Accepted Accounting Principles ("GAAP") for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring accruals)
necessary for a fair presentation have been included. The results of operations
and other data for the three months ended September 30, 1996 are not necessarily
indicative of results that may be expected for the entire fiscal year ending
June 30, 1997.
The unaudited consolidated financial statements include the amounts of Capital
Savings Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, Capital
Savings Bank, FSB (the "Bank") and the Bank's wholly-owned subsidiary, Capital
Savings Financial Services, Inc. ("CSFS") for the three months ended September
30, 1996. Material intercompany accounts and transactions have been eliminated
in consolidation.
(2) BENEFIT PLANS
The Bank established for eligible employees an Employee Stock Ownership Plan
("ESOP") in connection with its conversion from mutual to stock form (the
"Conversion"). The ESOP borrowed $938,400 from the Company and purchased 93,840
common shares issued in the Conversion. The Bank is expected to make scheduled
discretionary cash contributions to the ESOP sufficient to service the amount
borrowed. At September 30, 1996, the remaining balance of the ESOP loan was
$586,500 ($938,400 in proceeds from stock issued by the Company less the
principal payments made by the Bank) and is reflected in the accompanying
consolidated financial statements as a charge to unearned compensation and a
credit to common stock and paid-in capital. The unamortized balance of unearned
compensation is shown as a deduction to stockholders' equity. The unpaid
balance of the ESOP loan is eliminated in consolidation.
The Company has established a Recognition and Retention Plan ("RRP") which may
award up to 46,920 shares of Company common stock to officers, directors and
other employees of the Company and the Bank. On December 28, 1993, 38,589
shares of common stock were awarded pursuant to the RRP. All shares were
awarded to directors and officers of the Company and the Bank, and vest at a
rate of 20% per calendar year. The aggregate purchase price of these shares
will be amortized as compensation expense over the participants' vesting period.
The unamortized cost is reflected as a reduction of stockholders' equity.
The Company has also adopted a stock option plan for the benefit of directors,
officers, and other key employees of the Company and the Bank. The number of
shares of common stock reserved for issuance under the stock option plan is
117,300. On December 28, 1993, options to purchase 87,388 shares of common
stock were granted to directors and certain officers of the Company and the Bank
at an exercise price of $10.00 per share. The maximum option term cannot exceed
ten years. Two-thirds of the options awarded have vested, with the remaining
balance to vest on December 28, 1996.
<PAGE>
(3) EARNINGS PER SHARE
Earnings per share of common stock have been determined by dividing net income
for the three month period ended September 30, 1996 by the weighted average
number of shares of common stock and common stock equivalents outstanding.
Effective July 1, 1994 the Company adopted Statement of Position ("SOP") 93-6,
which requires recognition of expense based upon ESOP shares committed to be
released and the exclusion of unallocated ESOP shares from earnings per share
computations. Under SOP 93-6, the number of shares considered outstanding for
earnings per share purposes in periods prior to July 1, 1994, that are no longer
considered outstanding at September 30, 1996, totalled 54,529 shares. The
granted stock options are regarded as common stock equivalents and are therefore
considered in both primary and fully diluted earnings per share calculations.
(4) STOCK REPURCHASE PROGRAM
As of September 30, 1996 the Company had repurchased a total of 273,589 shares
of its common stock. The repurchased shares have become treasury shares
available for general corporate purposes, including the funding of stock options
and RRPs. During the quarter-ended September 30, 1996, the Company completed
its fifth stock repurchase. During the period, the Company repurchased 49,179
shares at an average price of $19.12.
(5) COMMITMENTS AND CONTINGENCIES
Commitments to originate mortgage loans of $2.1 million (of which $1.1 million
were adjustable-rate commitments) at September 30, 1996 represent amounts which
the Company plans to fund within the normal commitment period of sixty to ninety
days. As of September 30, 1996, the Company did not have any commitments to
purchase mortgage-backed securities.
The Company also offers home equity lines of credit to its customers. At
September 30, 1996 the outstanding lines of credit available totalled $4.0
million.
(6) RECLASSIFICATION
None.
(7) SUBSEQUENT EVENTS
The Company has declared a cash dividend of 12 cents per share for the quarter
ended September 30, 1996. The cash dividend is payable to stockholders of
record as of November 8, 1996, payable on November 22, 1996. The Company also
declared a two-for-one stock dividend to stockholders of record as of November
8, 1996, payable on November 22, 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Bank is the Company's only operating subsidiary. Unless the context
otherwise requires, all references to the Company includes the Bank and its
subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measurement of the Company's ability to raise cash when needed
without an adverse impact on current or future earnings. The Company's most
liquid assets are cash, cash due from banks, interest-earning deposits and U.S.
Treasury Securities with maturities of two years and less. The levels of these
assets are dependent on the Company's investing, operating, and deposit
activities during any given period. At September 30, 1996, cash, cash due from
banks and interest-earning deposits, totalled $3.9 million.
The Company's primary sources of funds are deposits, proceeds from maturing
investment securities, and principal and interest payments on loans. While
maturing investment securities and the repayment of loans are relatively
predictable sources of funds, deposit flows and early loan prepayments are more
influenced by interest rates, general economic conditions and competition. From
time to time, funds are borrowed from the Federal Home Loan Bank of Des Moines
("FHLB") as an additional source of funds.
The Bank is required to maintain minimum levels of liquid assets as defined by
OTS regulations. Liquid assets consist of cash, cash due from banks, interest-
earning deposits and short- and intermediate-term U.S. Government securities.
This requirement, which periodically varies depending upon economic conditions
and deposit flows, is based upon a percentage of deposits and short term
borrowing. The current required liquidity ratio is 5%. The Bank has
historically maintained a level of liquid assets in excess of this regulatory
requirement. The Bank's liquidity ratio was 6.90% at September 30, 1996.
Liquidity management for the Bank is both a daily and long term function of the
Bank's management strategy. In the event that the Bank requires funds beyond
its ability to generate them internally, additional sources of funds are
available through the use of FHLB advances and reverse repurchase agreements.
The primary investment activity of the Company is the origination of mortgage
loans. During the three months ended September 30, 1996 and 1995, the Company
originated mortgage loans in the aggregate amount of $15.3 million and $13.1
million, respectively. A more limited investment activity of the Company is the
investment of funds in U.S. Treasury securities, certificates of deposit with
other financial institutions, mortgage-backed securities and FHLB overnight
funds. During periods when the Company's loan demand is limited, the Company
may purchase short-term investment securities to obtain a higher yield than
available in interest-earning deposits.
At September 30, 1996 the Company had outstanding loan commitments to originate
$6.0 million of loans, including $4.0 million of undisbursed home equity lines
of credit. The Company believes that it will have sufficient funds available to
meet all of these commitments. At September 30, 1996, certificates of deposits
scheduled to mature in one year or less, totalled $84.0 million. Management
believes based on its experience to date, that a significant portion of these
funds will remain with the Company.
At September 30, 1996 the Bank exceeded each of the three regulatory capital
ratio requirements. The Bank's tangible, core and risk-based capital ratios
were 7.54%, 7.54%, and 16.11%, respectively. These regulatory capital ratio
requirements at September 30, 1996 were 1.5%, 3.0%, and 8.0%, respectively.
<PAGE>
CHANGES IN FINANCIAL CONDITION
Total assets increased $13.3 million, or 6.1%, to $231.2 million at September
30, 1996 from $217.9 million at June 30, 1996. The growth was primarily
attributed to increases in the loan and securities held-to-maturity portfolios.
The Company's loan portfolio increased $9.4 million, or 5.6%, to $176.0 million
at September 30, 1996 from $166.6 million at June 30, 1996, and the securities
held-to-maturity portfolio increased $2.8 million, or 23.3%, to $14.8 million
from $12.0 million for the same period. The asset increase was primarily funded
with an increase in borrowed funds and a growth in deposits.
Total liabilities increased $14.2 million, or 7.2%, to $211.7 million at
September 30, 1996 from $197.5 million at June 30, 1996. Deposits increased
$2.1 million, or 1.4%, to $154.4 million at September 30, 1996 from $152.3
million at June 30, 1996. Borrowed funds increased $11.0 million, or 26.2%,
during the same period to $53.0 million from $42.0 million, primarily to provide
additional funds for loan originations, loan purchases, and purchases of
securities. Accrued expenses and other liabilities also increased due to a
special assessment of $959,000 payable by the Bank to recapitalize the Federal
Deposit Insurance Corporation's ("FDIC") Savings Associations Insurance Fund
("SAIF").
The net loss for the quarter ended September 30, 1996, combined with the
repurchase of the Company's common stock, the payment of dividends declared on
common stock, and the positive adjustment of the net unrealized gain on
securities resulted in a net decrease in stockholder's equity of $957,000, or
4.7%, to $19.5 million at June 30, 1996.
INTEREST RATE SENSITIVITY
The Bank has employed various strategies intended to minimize the adverse effect
of interest rate risk on future operations of the Bank and the Company by
attempting to match the interest rate sensitivity of its assets and liabilities
and by expanding its activities which are not directly dependent on interest
rate spreads. The Bank's strategies are intended to stabilize net interest
income for the long-term by protecting its interest rate spread against changes
in interest rates.
The Board of Directors of the Bank has appointed an Asset/Liability Committee.
It is the responsibility of this committee to manage the interest rate
sensitivity of the Bank's balance sheet in order to minimize large fluctuations
in the net income of the Bank. The Bank utilizes adjustable rate mortgages
("ARM's") to provide repricing opportunities more closely matched within the
time frames in which its deposits are repriced. The committee is charged with
the responsibility to manage interest rate risk while remaining sensitive to the
Board's policy that credit risk not be substituted for interest rate risk. As a
result of these efforts, approximately 59% of the Bank's mortgage loan portfolio
as of September 30, 1996, consisted of ARMs, including ARM loans secured by
commercial real estate.
RESULTS OF OPERATIONS
GENERAL
The Company's results of operations depend primarily on the level of its net
interest income and non-interest income and the level of its operating expenses.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities, and the interest rates earned or paid on them,
respectively.
<PAGE>
The Company experienced a net loss of $125,000 for the three months ended
September 30, 1996 compared to net income of $444,000 for the same period in
1995. The reduction in earnings was due to the payment of the one-time SAIF
special assessment of $959,000 or $.63 per share, after tax. Net income,
without the SAIF assessment, for the quarter ended September 30, 1996 was
$467,000, an increase of $23,000 or 5.2% over the same period in 1995.
INTEREST INCOME
Interest income increased $689,000, or 19.1%, to $4.3 million for the three
months ended September 30, 1996 from $3.6 million for the same period in 1995.
The increase in interest income was due primarily to an increase in volume of
loans and mortgage-backed securities. The weighted average yield on the loan
portfolio for the quarter ended September 30, 1996 increased 9 basis points to
8.03% from 7.94% for the same period in 1995. The weighted average
yield on the mortgage-backed securities portfolio for the quarter ended
September 30, 1996 decreased 59 basis points to 6.82% from 7.41% for the same
period in 1995.
INTEREST EXPENSE
Interest expense increased $499,000, or 24.9%, to $2.5 million for the three
months ended September 30, 1996 from $2.0 million for the same period in 1995.
The increase was due primarily to interest paid on FHLB advances and deposits of
$392,000 and $107,000 respectively, as a result of an increase in the average
level of borrowed funds and deposits from the last period. The weighted average
rate paid on deposits increased 5 basis points to 4.74% for the quarter ended
September 30, 1996 from 4.69% for the same period in 1995. The weighted average
rate paid on borrowed funds decreased 43 basis points to 5.58% for the three
months ended September 30, 1996 from 6.01% in the same period in 1995.
NET INTEREST INCOME
Net interest income for the quarter ended September 30, 1996 increased $190,000,
or 12.2%, over the same period in 1995 due to an increase in assets, principally
loans and mortgage-backed securities. The Bank's net interest margin (interest
income less interest expense, expressed as a percentage of average interest-
earning assets) decreased to 3.27% for the three months ended September 30, 1996
from 3.48% for the same period in 1995.
PROVISION FOR LOAN LOSSES
The provision for loan losses is a result of management's periodic analysis of
the adequacy of the allowance for loan losses. The provision for loan losses
was $30,000 for both the quarters ended September 30, 1996 and 1995. At
September 30, 1996 the Company's allowance for loan losses totaled $664,000, or
.4% of net loans receivable and 140.4% of total non-performing assets.
Management establishes an allowance for loan losses based on an analysis of risk
factors in the loan portfolio. This analysis includes the evaluation of
concentrations of credit, past loss experience, current economic conditions,
amount and composition of the loan portfolio, estimated fair value of underlying
collateral, loan commitments outstanding, delinquencies, and other factors.
Because the Company's extremely low loan loss experience during its history,
management also considers the loan loss experience of similar portfolios in
comparable lending markets. Accordingly, the calculation of the adequacy of the
allowance for loan losses is not based solely on the level of non-performing
assets.
<PAGE>
Management will continue to monitor the allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions and loan portfolio quality dictate. Although the Company
maintains its allowance for loan losses at a level which it considers to be
adequate to provide for losses, there can be no assurance that future losses
will not exceed estimated amounts or that additional provisions for loan losses
will not be required in future periods. In addition, the determination as to
the amount of its allowance for loan losses is subject to review by the Bank's
regulators, as part of their examination process, which may result in the
establishment of an additional allowance based upon their judgment of the
information available to them at the time of their examination.
NONINTEREST INCOME
Noninterest income, consisting primarily of loan servicing income and fee income
from checking accounts increased by $76,000, or 47.2%, to $237,000 during the
three months ended September 30, 1996. The increase was primarily attributed to
an increase in other noninterest income consisting primarily of checking account
fee income which increased $69,000 to $124,000 for the quarter ended September
30, 1996.
NONINTEREST EXPENSE
Noninterest expense consists primarily of compensation and benefits, occupancy
and equipment, federal insurance premiums, and service bureau charges.
Noninterest expense was $2.2 million for the three months ended September 30,
1996, including the non-recurring SAIF assessment of $959,000. Noninterest
expense without the SAIF assessment was $1.2 million for the three months ended
September 30, 1996, compared to $998,000 for the same period in 1995, an
increase of $229,000 or 23.0%. The increase was mostly attributed to the
increase in other expenses, which increased $133,000, or 45%, consisting
primarily of expenses related to the Company's new, aggressive checking account
program.
On September 30, 1996, federal legislation was enacted that requires the SAIF to
be recapitalized with a one-time assessment on virtually all SAIF-insured
institutions, such as the Bank, equal to 65.7 basis points on SAIF-insured
deposits maintained by those institutions as of March 31, 1995. This SAIF
assessment, which is to be paid to the FDIC by November 27, 1996, is
approximately $959,000 and has been accrued by the Company at September 30,
1996. The Bank, after recording the SAIF assessment charge to earnings, still
remains a well capitalized institution for regulatory capital purposes.
As a result of the SAIF recapitalization, the FDIC has proposed to amend its
regulation concerning the insurance premiums payable by SAIF-insured
institutions. Effective October 1, 1996 through December 31, 1996, the FDIC has
proposed that the SAIF insurance premium for all SAIF-insured institutions that
are required to pay the Financing Corporation ("FICO") obligation, such as the
Bank, be reduced to a range of 18 to 27 basis points from 23 to 31 basis points
per $100 of domestic deposits. The Bank currently qualifies for the minimum
SAIF insurance premium of 23 basis points. The FDIC has also proposed to
further reduce the SAIF insurance premium to a range of 0 to 27 basis points per
$100 of domestic deposits, effective January 1, 1997. Management cannot predict
whether or in what form the FDIC's final regualtion may be promulgated.
INCOME TAX
The provision for income taxes decreased $922,000 to ($198,000) for the three
months ended September 30, 1996. The tax credit was due to the one-time SAIF
assessment in the period.
<PAGE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
Part II -- Other Information
Item 1 Legal Proceedings
Not applicable.
Item 2 Changes in Securities
Not applicable.
Item 3 Default upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5 Other Information
None.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement re: computation of per share earnings
Exhibit 27 - Financial Data Schedule
(b) There were no reports filed on Form 8-K
<PAGE>
<TABLE>
EXHIBIT 11
<CAPTION>
Statement re: Computation of Per Share Earnings
Three Months
Ended
September 30, 1996
__________________
<S> <C>
1. Net income $ (124,778)
==================
2. Weighted average common shares outstanding* 865,626
3. Common stock equivalents due to dilutive effect of:
Recognition and Retention Plan 38,589
Stock Options 26,101
__________________
4. Total weighted average common shares and
equivalents outstanding for primary earnings
per share computation 930,316
==================
5. Primary earnings per share* $ (0.13)
==================
6. Weighted average common shares and equivalents
outstanding 930,316
7. Additional dilutive shares using the higher of
the end of the period market value versus average
market value for the period utilizing the treasury
stock method regarding stock options 4,093
__________________
8. Total weighted average common shares and
equivalents outstanding for fully diluted earnings
per share computation 934,408
==================
9. Fully diluted earnings per share $ (0.13)
==================
<FN>
* The weighted average common shares outstanding has been computed in accordance
with SOP 93-6, which requires the exclusion of ESOP shares, totaling 54,529 at
September 30, 1996 that have not been committed to be released, from earnings per
share computations.
</FN>
</TABLE>
<PAGE>
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARIES
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL SAVINGS BANCORP, INC.
_____________________________
(Registrant)
Date: 11/13/96 /s/ Larry Schepers
____________________________________
Larry Schepers
President and Chief Executive Officer
(Duly Authorized Officer)
Date: 11/13/96 /s/ Arthur Wankum
____________________________________
Arthur Wankum
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,899,581
<INT-BEARING-DEPOSITS> 1,047,813
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,553,254
<INVESTMENTS-CARRYING> 17,427,387
<INVESTMENTS-MARKET> 17,449,500
<LOANS> 176,006,647
<ALLOWANCE> 664,000
<TOTAL-ASSETS> 231,244,937
<DEPOSITS> 154,435,948
<SHORT-TERM> 53,000,000
<LIABILITIES-OTHER> 4,284,924
<LONG-TERM> 0
0
0
<COMMON> 12,116
<OTHER-SE> 24,532,506
<TOTAL-LIABILITIES-AND-EQUITY> 231,244,937
<INTEREST-LOAN> 3,469,319
<INTEREST-INVEST> 800,707
<INTEREST-OTHER> 18,922
<INTEREST-TOTAL> 4,288,948
<INTEREST-DEPOSIT> 1,831,013
<INTEREST-EXPENSE> 2,507,955
<INTEREST-INCOME-NET> 1,780,993
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,185,864
<INCOME-PRETAX> (198,049)
<INCOME-PRE-EXTRAORDINARY> (198,049)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124,778)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
<YIELD-ACTUAL> 7.85
<LOANS-NON> 204,000
<LOANS-PAST> 188,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 634,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 664,000
<ALLOWANCE-DOMESTIC> 664,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
